Vancouver RE: Not As Expensive Provided You Don’t Think – “It’s clear that our perception of affordability has been coloured by living on a continent where housing is unusually inexpensive.”

“The real estate market is soft, and it’s going to get softer. In the last year, average prices have dropped five percent or so, and they’ll sink some more, guaranteed. Less certainly, the market will…not plunge American-style but rather drift, sometimes downward, sometimes sideways, and perhaps not for very long.” …

“… the Cassandras have gained the upper hand lately, and looking at some of the numbers it’s easy to see why. Sales running at only two-thirds the normal pace. Lots of dwelling completions due this year. Historical norms that are way out of whack. The unreasonable chunk of average income that buying a house here requires. Rents that stack up well against buying. Then again, there also exist other, less ominous numbers, some of which will be revealed here for the first time.” [What cheek. MOI has been well know in local RE discussion for years, thanks to the work of jesse (YVRHousing) and others. – ed.]…The mystic metric is called months of inventory, which is the number of homes for sale divided by a given month’s sales. When the MOI is neutral-around six or seven-average prices change little. Below six, prices rise. And an MOI in double digits results in lower prices. The formula works so reliably, it’s bizarre. … Long before prices respond, anyone willing to make a simple calculation will know.” …

“Of course, the mild price drops currently predicted by MOI look nothing like the armageddon forecast by those who believe we’re in a real estate bubble. Why not a U.S.-style meltdown here? The reasons are many (shortage of land, solid financial institutions, impressive livability, fiscal health, low mortgage rates…) even if far from categorical. A major safeguard is the provincial economy.” …
How can this be the case when so many sectors are in trouble? Film production, gaming, life sciences-so much for the halo industries that were going to make us a post-industrial poster child. But at the same time, a lot of industries are thriving. … (goes on to list lumber, mining, pipelines)…
TEDtalks, HootSuite, Plenty of Fish, and Lululemon sure sound like storytime selections at the daycare centre but actually mint money while helping to define the 21st century. Fortunes can be fickle out there on the cutting technical-entertainment-design edge, as a prior generation of civic champions like Angiotech, Electronic Arts, and Ballard Power Systems proves. Still, it’s an indication that at least some cultural creatives can afford to live here. So the local economy is almost certainly going to be just fine, which will help keep the real estate market from crashing, regardless of all those micro-metrics.” …

“The monster that threatens to swamp us is declining immigration-and in Vancouver that’s the worst thing that could happen to property markets.” …

“But why, one might reasonably ask, are immigrants to Vancouver so fixated on buying real estate? Isn’t it foolish to dive into such a pricey market? Reasons have to do with everything from cultural predilections to the perceived riskiness of other investments; from the apparent solidity and performance of our property market to the essential nature of being adrift in a foreign land. But beyond all that, the fundamental explanation is straightforward: especially to immigrants from Asia, real estate in Vancouver doesn’t seem expensive at all. In fact, it’s pretty cheap.” …

“One [analysis], by the Serbia-based crowd-sourced website Numbeo.com, comes up with house-to-income ratios very similar to Demographia’s but analyzes 362 of the world’s largest cities in more than 100 countries. On Numbeo, Vancouver sits not second or even 25th, but as the 125th least affordable city in the world. Our price-to-income ratio is about one-third that of Chinese cities such as Beijing, Shanghai, and Shenzhen and comparable to or cheaper than most other places where Chinese emigrants might reasonably expect to land. Potboiler settings like Moscow, London, Paris, and Tokyo are up to twice as expensive, while secondary but still global cities such as Sydney, Melbourne, Amsterdam, Stockholm, and Barcelona-the kind that join us on livability surveys-are tightly bunched around us in terms of affordability as well. Comparable American spots like Seattle, San Francisco, and San Diego are a little to a lot more affordable, but prices in the U.S. recently experienced a catastrophic plunge and are now bouncing back strongly, even as ours soften. It’s clear that our perception of affordability has been coloured by living on a continent where housing is unusually inexpensive.” […and why shouldn’t our housing be inexpensive? -ed.] …

“None of this means that housing affordability isn’t a problem in Vancouver. We know that mortgage payments are taking up too much of our income, that young people discouraged by the high cost of entry are leaving town, and that the situation isn’t sustainable. We also know that prices are currently falling and that the MOI the formula says they will drop some more. But unless we lose status as a global magnet or immigration is otherwise reined in, a real estate environment akin to that of other Canadian cities or currently depressed American ones is not a realizable dream.”
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See below for one reader’s impressions of the article.
Personally, we won’t attempt a comprehensive analysis at this moment.
The author deserves credit for listing evidence that Vancouver RE is overextended and some of the negative effects of high RE prices. At the same time he also throws in many of the mythical reasons for ongoing relentless support.
One critique I would offer is that there is a strong possibility that the BC economy has only seemed relatively resilient because of the RE spec mania (and all its knock-on ‘positive’ multiplier effects), and thus using apparent BC economy resilience as a reason for ongoing future RE strength is a circular argument. We still believe that our economy will suffer badly when our RE inevitably reverts to mean.
Another thing: why shouldn’t our RE be as inexpensive as places such as the US?
– vreaa
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“OMG!! You have to profile this!!! I just flip through April 2013 issue of Vancouver Magzine’s cover story about Vancouver RE. It is simply unbelievable the extent to which they try to convince people that Vancouver RE is still cheap by global standards. Two things stuck out for me –

“The first is a map of Vancouver, Burnaby and North Shores redraw with new neighborhood names like – Hanoi for most of Burnaby, Macau & Kew Gardens for UBC, Downtown Abby for Cambie from Broadway to 41st, and then North & South Yorkshire from 41st to Marine Drive, Queenstown and Gaslamp Quarter for North Van, and Brighton, Monte Carlo, Chamonix Mount Blanc for West Vancouver. Unbelievable!!”

“The second is they tried to dispel the myth that Demography Survey tries to peddle that Vancouver is expensive by world standards. They gave these reasons why you shouldn’t trust that survey. One the survey only included 7 countries and excluded most of the world including Asia, Africa and South America. Second the backers of the survey is an ultra conservative right wing think tank that opposes any idea to moderate car use. As a counter example, they used data from a Serbia-based crowd-source website that shows on a price to income ratio, Vancouver is cheap, cheap, cheap, especially compared against world class cities.”

“Further, in a comparison they claimed to show that a desirable house in 7 cities with higher price to income ratios – Phnom Penh, Rome, St. Peterburgs, Tel Aviv, London, Mexico City, and Melbroune – all require you to spend “the same for less square footage, less lawn but more history”. However their comparison really got my blood pressure up… They do not compare apples to apples… The ‘desirable house’ in Vancouver they picked is a 4 bed 2 bath house near King Ed Canada Line station and they describe it as TEARDOWN! Let’s just let it sink in for a minute. An example of a desirable home in Vancouver is a teardown on a busy main artery road!!” …

“Around the World in Seven (sic) Homes
What does a desirable (but you know, not outrageous) house look like in cities with higher price-to-income ratios? In many cases, you’re spending the same for less square footage, a lot less lawn, and a lot more history.” [P:I ratios cited appear to be median city home price to median city income, not related to the specific properties. -ed.]

47 responses to “Vancouver RE: Not As Expensive Provided You Don’t Think – “It’s clear that our perception of affordability has been coloured by living on a continent where housing is unusually inexpensive.””

“Another thing: why shouldn’t our RE be as inexpensive as places such as the US?”

Our RE should be *less* expensive than in the U.S. for a host of reasons, not least of which is that after-tax incomes are lower in Canada.

Regarding the photo montage, I question the last example of the house in Coyoacan. Having grown up in Mexico City, and currently living in the neighbourhood cited, I believe the house featured would cost significantly less than stated. I also believe that price-to-income is way higher in Van than in Mex City.

I agree that US is taxed less, and the more a person makes the greater the advantage. For most though actually, the net income is less different than you would think. There are lots of extra taxes and charges to account for in the US. Whereas Canada has more an all-in-one buffet approach to taxes in the US it is more piecemeal. The often quoted federal tax rate is only part of it. Some examples, Depending what state people live in they also fill out and submit a second tax return to the state for state income tax. There are other taxes for medicare, social security that add up quickly and are much more expensive than Canada.

Lastly, even as an employee most people pay out of pocket monthly for health premiums and then substantial deductibles/co-pays when seeking care. These ongoing costs for health can very reasonably be $1k a month for a healthy family, after paying for portion of premiums and other associated costs. For some even more. The most perverse thing is the higher up the economic ladder you are, the more likely your employer pays for it and the lower the cost. The lower down the ladder, the more a person to fork out. The $1k a month is not untypical for a college educated person in good figure job in my experience, all costs factored in. I’ve worked multiple big name US Employers and smaller start-ups.

Correct me if I am wrong. Aren’t you able to write off your mortgage or part of your mortgage against your income (but have to pay capital gain when you sell your primary residence)? My aunt traded up for a larger house simply because she has high income and wants to minimize her tax. In other word, US tax rules allow you to defer tax if you hold on to your primary residence whereas Canadian tax rules sort of encouraging buying and selling your primary residence for capital gain?

I know for fact that few of my friends overextended themseves to trade up their primary residence from apartments to houses hoping to capture larger price appreciation (speculation of course) in 2011. Pray for them right now.

I am referring to a family situation. I can go through my experience with wife and two kids. Costs coming in various forms. It gets complicated quickly – it’s a private system for which people buy insurance through their employer or otherwise. Those insurers carve out a lot.

Some costs:

1. Individual’s contribution to monthly premium. $500-$800 is common. Personally I’ve paid $500 month for my part of a good employer plan and also had at two separate points, employers who paid for everything but after some time changed to a shared cost model. My wife makes near six figures and her insurance has typically been less attractive than available through my employers, charging nearer the $800/month.

2. Deductibles – So you pay say $500/month for your insurance. Turns out very commonly, the first charges in range for few hundred to $1000 a year, per person is not covered. You need to pay the first costs out of pocket. My case, for many years was first $400 / person out of pocket working for a major fortune 100 company.

3. Copay – Charge you pay for a regular dr. visit. $20-$30 is common, each visit.

4. Co-Insurance, above the co-pay, the proportion that is covered by the insurance 80-90% coverage is common. Usually Dr. office visit is covered 100% after co-pay is paid (meaning the $20-$30) charge for a visit. Additional services, are covered at 80%-90% rate. 80% coverage is crappy, 85%-90% is decent.

So how does this work out?

There’s usually an annual out of pocket maximum, per person and per family unit. $2000-$3000 per person per year, and $4000-$7500 family maximum is typical from what I’ve seen.

Depending how the year works out the numbers can vary. But things happen.

My cases:
$500/ month coverage = $6k year

Wife has a baby. – This results in normal birth of $30k to $40k charges, the maximum per person will be reached. The baby is a new person. So the baby birth is another $2000+$2000 = $4k. Take into account the $500*12 = 6k that’s already 10k outside of any other medical visits or needs. With a family with kids, things come up and they need to be done often unexpectedly.

Someone gets hurt, ends up in emergency room. My case, it ended up costing about $1k out of pocket for one visit for stitches for a child after insurance coverage.

The $1k a month thinking about it, is probably a bit on the high side but definitely in range.

For my wife’s insurance, the deductible per person was $750/person, $3k annual maximum and for this the employer wanted $800 / month and only offered 80% insurance coverage.

So the above is my experience, and I think it’s accurate from working with high powered fortune 100, Dow-30 employers and also successful smaller firms in the few hundred employees. Industry seems to matter a lot. I have spent my career in tech/finance and always had what is considered good insurance coverage.

It’s funny, how the author chooses to compare to cities that are truly global (Rome, London, etc.).
But OTOH, who wants to live in a 1000 year old building in Rome? The wood-frame is probably all moldy by now, the particle board walls must be falling apart, the insulating foam inside the walls needs to be replaced.
Just kidding.

The comparison should be done to a comparable US city. Take a look south at Seattle and the burbs for example and check what can be had for the price. It is truly stunning to see the difference. I remember once looking for a home here in Seattle and was up in Van, mentioned it to friend. They asked about price and when I told them the number I thought was already a lot, they responded as back, wow that’s cheap. It was 1/3 of what they would have spent circa 2011. I’ve personally had similar conversations with friends from Van and have come to believe that the Van & Metro populace is under some sort of reality distortion field on what property could and should cost. We all see this starting to adjust, but a lot of minds yet need to be swayed.

Oh, another thought that just occurred to me: This article actually confirms my thoughts about who those investors are that buy in Vancouver: Locals. Otherwise this wouldn’t have run in Vancouver Magazine but the equivalent of that magazine in the cities they compare themselves to.

This article attemps, on behalf of property developers and real estate hucksters, to quell growing nervousness among buyers and sellers. The corporate media has pretty well given up efforts to perpetuate the myth that house prices can only go up. We are even past the point where it was often argued that prices have stabilized. The dominant theme now claims there will be a ‘soft landing’ buttressed with arguments that amount to yet further variations on the ‘it’s different here’ myth. In this article it’s the claim that there is enormous potential demand out there and the unstated subtext is that you will regret not having taken advantage of what will be a temporary dip in prices. There is not an ounce of sincerity to the author’s inclusion of an incomplete, severely understated list of the social consequences of stratospheric housing prices. The author is smart enough to know that a slight tip of the hat in that direction helps give him a veneer of credibility. The ‘soft landing’ argument will have a limited and temporary efficacy. It will cease having any effect once we enter the fear and panic stage of a bursting bubble. That stage starts when evidence appears all around of severe economic contraction – lay-offs, budget deficits, austerity – brought on by the collapse in the very significant portion of expenditure that was based on rising property prices.

I thought it offered an interesting perspective that we have not seen before. It never struck me as being manipulative….only a little naive on some finer points such as why Vancouver prices are high.

What is interesting to me though is how the writer drew attention to high priced housing outside our normal sphere of vision (which is not the same thing as saying Vancouvers prices are OK if they are this high).

What he was addressing whether he understood it or not was that these remarkable high prices actually represent a loss of our living standards and that this becomes more obvious when comparisons are made between the global community versus the US, Canada and Europe.

We have just become a lot poorer in relative terms. Our high home prices don’t make us special either except by comparison to our peers but maybe that is the real worry we need to address.

Why are our living standards dropping so much that our housing and shelter costs now approach what people in developing nations pay on a variety of metrics (such as price/income, for example)?

This gets us back to some of the very negative impacts we are seeing with housing being not affordable. The most notable of these is that it is now so high people must choose between having children and paying for shelter!

No wonder there is an exodus of young people from the city putting the retail sectors at risk and pressuring down civic revenues in the process. This kind of damage can obviously be long lasting where the population is already fairly old by median standards compared to poorer nations who face similarly discordant pricing but have much younger populations.

This article claims “price chopping” when in fact the condo was just bought in Feb 2012 for $699,000 and sold a year later for $875,000. Apparently the “price reduction” comes in the form of the condo originally being listed for $925,000 and reduced to $888,000.

Check out the other “Penthouse” in the same complex for sale. Notice the ultra conspicuous staging, ie. none of these places have been lived in. Not sure why MLS has this listed for $100k cheaper than the realtors site. BTW, the realtor is a graduate for MAC Marketing.

Was that a resale at 699k, or was it a price contracted a few years ago for a new build?

The silly Globe’s similar Toronto article was a farce. “How to Sell A Property Fast for Over Asking.” The secret answer (NOT revealed in the article)? Drop the price $100k and then accept an offer 60k over the new lower ask.

The District? Wasn’t that the place where there were 25+ units unsold upon completion, I remember it was one of the turning point buildings from being sold out everything to tonnes of inventory upon completion.

If you look at the price to income ratio it shows that the average household income in Vancouver is around $200,000!!!!!!!! If you plug in the real figure you have a ratio of around 30. I find it interesting how people lie when they try to justify our real estate prices. It is because these people realize as well that they are way too high and the only way to justify them is through lies and fiction?

Exactly..
And comparing a moldy shack in Vancouver to a house (as in a livable place without “unauthorized suite”) in LONDON or ROME blows away any validity to the argument.
Vancouverites have to dig their heads out from the sand. Vancouver is NOT in the same league as London, NYC, Hong Kong etc. It is a 3rd tier city with a good scenery.

Well, according to Google, Lululemon employs 5.81k employees (full + part time), but doesn’t say where they all are. This will dwarf the number of employees directly employed by HootSuite + Plenty of Fish + whatever jobs are created to bring TEDtalks to Vancouver.

So our entire economic strength is going to be banked on the incomes of a group of people that are probably less in number than any of the following:
– number of teachers in the GVRD
– number of police officers in the GVRD
– number of firefighters in the GVRD
– number of bank employees for any one bank or credit union in the GVRD
– number of realtors in the GVRD.

The only smaller group that I could think of would be something like call center employees in the GVRD for Telus. (Do those still exist?)

Are those corporate jobs at LuluLemon? I would guess that most are low-paying retail jobs. Not to discount the company, it is great to have some sort of corporate headquarters here, but saying those jobs will support Vancouver’s economy is akin to expecting salvation from the spending power of Starbucks baristas.

You forgot about number of nurses, doctors and other healthcare providers. One or two hospitals can make up a very, very, large portion of a city’s economy, and that’s not counting all the second order related services and industries that support the hospitals and clinics.

In LinkedIn, it says 2413 employees and 661 in Vancouver. So even if you round that up to 1k… Unless HootSuite moved, the last time I walked by the building, it would not have housed more than 200 people (generous estimates).

According to wikipedia, the GDP of WA is 311 billion USD. The GDP of BC is 217 billion CAD. The GDP of London is 565 billion USD? in 2008. To the ‘jounalists’ at Vancouver magazine, if you’re going to talk about economic health, don’t throw out platitudes about yoga clothing and iphone games.

its pretty funny when Vancouver booster’s desperately try to hype their town..by mentioning stretchy pants companies and some obscure social media “dashboard” (whatever that is) that nobody seems to know what it does or anyone who uses it

Nice edit VREAA. This is definitely something that should be archived. If this were a research project at real university, I’m not sure if this will even achieve a pass grade……to me, it is quite sad how low/desperate the media will go to for justifying RE and if people believes it, may whatever god/deity they believe have mercy on their financial soul.

And the article identifies Ballard Power Systems as a major industrial employer? In Vancouver? (Burnaby, actually). Maybe circa 2007. Ever since then, it has cut staff, and currently survives as a supplier of engineering services to other companies.

Actually the article agrees with you. Read that part again: “Fortunes can be fickle out there on the cutting technical-entertainment-design edge, as a prior generation of civic champions like Angiotech, Electronic Arts, and Ballard Power Systems proves.”

I know the author. He’s pretty much the furthest thing from a Real Estate Bull that you’ll find. And he’s hardly in the pocket of the RE pumpers. You can disagree with his methodology — and frankly, touting the MOI as some great, new, next big thing is ridiculous — but you’re barking up the wrong tree if think he’s in someone’s pocket.

Agreed, his portfolio speaks for itself. I think comparing cities like that apples to apples is not correct; the business case of real estate in Vancouver in my view incorrectly relies on short-term financing terms.

Doesn’t matter if you know the author or your opinion about him.
The article does not sound genuine at all. The author seems to be pleading desperately for Van RE and seems disingenuous (or clueless) whether its MOI or the economic fundamentals that define a city.
Desperation has a way of showing itself.
Lululemon..give me a freaking break. Ever been to Seattle?